8222 Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 

8 15 U.S.C. 78s(b)(3)(A)(i). 

9 17 CFR 240.19b-4(f)(1). 

10 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b-4. 

3Municipal fund securities are defined in Rule 

D–12. 529 college savings plans are established by 

states under Section 529(b)(A)(ii) of the Internal 

Revenue Code as ‘‘qualified tuition programs’’

through which individuals make investments for 

the purpose of accumulating savings for qualifying 

higher education costs of beneficiaries. Section 529 

of the Internal Revenue Code also permits the 

establishment of so-called prepaid tuition plans by 

states and higher education institutions. All 

references to 529 plans are intended to encompass 

only 529 college savings plans established under 

Section 529(b)(A)(ii). 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing proposed rule change 

will take effect upon filing with the 

Commission pursuant to Section 

19(b)(3)(A)(i) of the Act 8 and Rule 19b4(f)(1) thereunder,9 because it 

constitutes a stated policy, practice, or 

interpretation with respect to the 

meaning, administration, or 

enforcement of an existing rule. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–ISE–2007–11 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ISE–2007–11. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing also will be 

available for inspection and copying at 

the principal office of the ISE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–ISE–2007–11 and should be 

submitted on or before March 16, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.10

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3094 Filed 2–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55302; File No. SR–MSRB–

2006–09] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing of Proposed 

Rule Change and Amendment No. 1 

Thereto Relating to MSRB Rule G–21, 

on Advertising, and MSRB Rule G–27, 

on Supervision 

February 15, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b-4 thereunder,2

notice is hereby given that on November 

21, 2006, the Municipal Securities 

Rulemaking Board (‘‘MSRB’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change, and amended 

such proposed rule change on February 

12, 2007 (‘‘Amendment No. 1’’), as 

described in Items I, II, and III below, 

which Items have been substantially 

prepared by the MSRB. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The MSRB has filed with the SEC a 

proposed rule change consisting of (i) 

Amendments to Rule G–21, on 

advertising, and Rule G–27, on 

supervision, and (ii) an interpretation 

(the ‘‘proposed interpretive notice’’) on 

general advertising disclosures, blind 

advertisements and annual reports 

relating to municipal fund securities. 

The MSRB proposes that the proposed 

rule change be made effective on April 

1, 2007. The text of the proposed rule 

change is available on the MSRB’s Web 

site (http://www.msrb.org), at the 

MSRB’s principal office, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

MSRB included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. The MSRB has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

In 2005, the MSRB adopted new 

section (e) of Rule G–21 that established 

specific standards for advertisements by 

brokers, dealers and municipal 

securities dealers (‘‘dealers’’) of 

municipal fund securities, including 

interests in 529 college savings plans 

(‘‘529 plans’’).3 This section of the rule 

was modeled in part on Rule 482 

adopted by the SEC under the Securities 

Act of 1933, as amended (the 

‘‘Securities Act’’), and also codified 

previous MSRB interpretive guidance 


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Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8223 

4See Rule G–21 Interpretive Letter—529 College 

Savings Plan Advertisements, MSRB Interpretation 

of May 12, 2006, published in MSRB Notice 2006–

13 (May 15, 2006) (the ‘‘May 2006 Interpretation’’). 

When approved, the proposed rule change will 

supersede this May 2006 Interpretation. 

5The proposed rule change re-designates several 

existing provisions and incorporates new headings 

for many provisions to assist in compliance with 

the rule. References herein to rule provisions refer 

to such provisions as re-designated in the proposed 

rule change. 

6The definition of ‘‘product advertisement’’ in 

the proposed rule change codifies interpretive 

guidance provided in the May 2006 Interpretation. 

7However, the additional specific content 

standards under section (e) of Rule G–21 for 

municipal fund securities product advertisements 

are modified by the proposed rule change, as 

described below. 

8The May 2006 Interpretation effectively 

recognized that the professional and product 

advertisement content standards under existing 

Rule G–21 may not apply to certain advertisements 

that do not fit neatly into either category. 

9Rule G–21(e)(i)(B)(1) is modeled in part on 

Securities Act Rule 135a relating to generic 

investment company advertising. However, the 

proposed rule change modifies or omits certain 

basic features of Rule 135a to adapt the concept of 

generic advertising to the specific characteristics of 

the municipal fund securities market. 

10This provision effectively codifies, with minor 

modifications, interpretive guidance provided in 

the May 2006 Interpretation. 

on advertisements of municipal fund 

securities. On May 12, 2006, the MSRB 

published interpretive guidance on 

certain elements of amended Rule G–21 

as they apply to advertisements of 529 

plans.4

The proposed rule change further 

harmonizes the MSRB’s advertising rule 

with the rules of the SEC and NASD 

relating to investment company 

advertising. The proposed rule change 

also provides certain clarifications of 

and exceptions to existing standards 

that the MSRB believes more closely 

tailor the provisions of the rule to the 

specific characteristics of the municipal 

fund securities market without reducing 

the investor protections afforded by the 

rule. Although most of the amendments 

effected by the proposed rule change 

relate specifically to advertisements of 

municipal fund securities, certain 

provisions would apply to 

advertisements of all types of municipal 

securities, including bonds and notes. 

Provisions of General Applicability 

Definition of Advertisement. The 

proposed rule change modifies the 

existing definition of ‘‘advertisement’’

as set forth in Rule G–21(a)(i) 5 to more 

closely conform it to the terms 

‘‘advertisement’’ and ‘‘sales literature’’

under NASD Rule 2210(a)(1) and (2). 

The revised definition is intended to be 

as inclusive as the terms 

‘‘advertisement’’ and ‘‘sales literature’’

are used under NASD and SEC rules, 

except as otherwise specifically 

provided in Rule G–21(a)(i). Thus, the 

reference in the revised definition of 

‘‘advertisement’’ to any electronic or 

other public media should be read as 

broadly as in the definition of 

‘‘advertisement’’ under NASD Rule 

2210(a)(1), even though the definition 

set forth in Rule G–21(a)(i) does not 

include the list of media that currently 

or in the future may appear in the NASD 

definition. 

Definition of Form Letter. The 

proposed rule change adds a new 

definition of ‘‘form letter’’ in Rule G–

21(a)(ii) that is consistent with Rule 

24b–1 under the Investment Company 

Act of 1940, as amended (the 

‘‘Investment Company Act’’), but 

clarifies that a form letter includes both 

written letters (including post cards and 

similar mailings) and electronic mail 

messages. 

Definitions of and Content Standards 

for Professional and Product 

Advertisements. The proposed rule 

change provides explicit definitions for 

‘‘professional advertisement’’ and 

‘‘product advertisement’’ and sets forth 

the applicable content standards for 

these types of advertisements. The 

amendment to the definition of 

‘‘professional advertisement’’ under 

Rule G–21(b)(i) does not effect a change 

in how such term has been viewed 

historically under the rule. The 

amendment to the definition of 

‘‘product advertisement’’ under Rule G–

21(c)(i), however, clarifies that it applies 

to advertisements of specific municipal 

securities or advertisements that discuss 

specific features of municipal securities, 

rather than to advertisements that may 

merely mention general categories of 

municipal securities.6 The content 

standard for professional advertisements 

under Rule G–21(b)(ii) is unchanged, as 

is the baseline standard for product 

advertisements under Rule G–21(c)(ii).7

General Content Standard for 

Advertisements. Rule G–21(a)(iii) 

establishes a general content standard 

for advertisements that are neither 

professional advertisements nor product 

advertisements.8 This standard is the 

same as the existing baseline content 

standard for product advertisements. 

The MSRB emphasizes that all 

advertisements, regardless of category, 

are subject to the MSRB’s basic fair 

dealing rule, Rule G–17, which requires 

each dealer, in the conduct of its 

municipal securities activities, to deal 

fairly with all persons, and prohibits the 

dealer from engaging in any deceptive, 

dishonest or unfair practice. The 

proposed rule change does not alter 

these fair dealing principles, which 

continue to apply to all advertisements. 

Generic and Blind Advertisements for 

Municipal Fund Securities 

Generic Advertisements. The 

proposed rule change establishes under 

Rule G–21(e)(i)(B)(1) provisions relating 

to generic advertising of municipal fund 

securities. A generic advertisement of 

municipal fund securities that meets the 

requirements of Rule G–21(e)(i)(B)(1) 

would not need to include the general 

disclosures required under Rule G–

21(e)(i)(A).9

Blind Advertisements. The proposed 

rule change provides for more limited 

disclosures for certain blind 

advertisements under Rule G–

21(e)(i)(B)(2). Under this provision, 

advertisements that promote an issuer 

and its public purpose without 

promoting specific municipal fund 

securities or identifying a dealer or its 

affiliates would be permitted to limit 

basic disclosures in the same manner as 

generic advertisements.10 A blind 

advertisement may contain contact 

information for the issuer or its agent to 

obtain an official statement or other 

information, provided that if the dealer 

or its affiliate acts as such agent, no 

orders may be accepted through such 

contact unless such order is initiated by 

the customer. The proposed interpretive 

notice emphasizes that a blind 

advertisement may not identify the 

dealer or its affiliate and provides 

guidance to dealers acting as the issuer’s 

agent in responding to customer 

inquiries and accepting customer orders 

made through the contact information 

included in a blind advertisement. The 

guidance provided with regard to 

whether an order may have been 

initiated by the customer applies solely 

to this provision of Rule G–21 and is not 

intended to be determinative as to 

whether the dealer has recommended 

the transaction to the customer for 

purposes of Rule G–19, on suitability of 

recommendations and transactions, 

since, depending on the facts and 

circumstances, the customer may have 

initiated the order based on a 

recommendation from the dealer. 

In addition, advertisements qualifying 

as blind advertisements under Rule G–

21(e)(i)(B)(2) are excepted from the 

requirement in Rule G–21(e)(iv) to 

include the dealer’s capacity since the 

dealer is not identified in the 

advertisements. 

Performance Data for Municipal Fund 

Securities 

Disclosure of Fees and Expenses in 

Advertisements and Correspondence. 

The proposed rule change includes 

provisions substantially similar to 


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8224 Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 

11See Exchange Act Release No. 54103 (July 5, 

2006), 71 FR 39379 (July 12, 2006). See also NASD 

Notice to Members 06–48 (September 2006). 

12As required under NASD Rule 

2210(d)(3)(A)(ii)(a), such maximum sales load 

(whether as a maximum sales charge or maximum 

deferred sales charge) must be current as of the date 

such advertisement is submitted for publication or 

is otherwise disseminated. 

13Under Rule 

G–21(e)(ii)(C), the total annual operating expense 

ratio must be calculated as of the most recent 

practicable date considering the type of municipal 

fund securities and the media through which such 

information will be conveyed. Additional language 

included in Rule G–21(e)(i)(A)(3)(c) and (e)(ii)(A) 

recognizes that municipal fund securities are not 

subject to the registration requirements of the 

Securities Act and is designed to ensure that 

information on fees and expenses is determined in 

a manner consistent with the registered investment 

company market, to the extent possible. 

14Although the other provisions of Rule G–21 

would not apply to correspondence covered by Rule 

G–21(e)(vii), the basic fair dealing requirements of 

Rule G–17 described above would still apply. 

15The language added to Rule G–27(d)(ii) makes 

clear that a dealer’s supervisory procedures must 

provide for review of correspondence for 

compliance with the performance data 

requirements, but only to the extent that such 

requirements are applicable given the nature of the 

dealer’s municipal securities activities. Thus, 

dealers that do not market municipal fund 

securities generally would not be required to 

provide for review of correspondence for 

compliance with Rule G–21(e)(vii). 

16Compare Rule G–21(e)(i)(A)(3)(a), where a 

legend is explicitly required. 

17These disclosures can be lengthier for many 

529 plan advertisements than for investment 

company advertisements as a result of the home 

state tax benefit disclosures generally required 

under Rule G–21(e)(i)(A)(2)(b) as described below, 

which are not required in connection with 

investment company advertisements. 

recently approved NASD Rule 

2210(d)(3) relating to investment 

company advertisements, sales 

literature and correspondence 

containing performance data, which 

becomes effective on April 1, 2007.11

Rule G–21(e)(i)(A)(3)(b) and (c) will 

retain the existing requirement that 

advertisements containing performance 

data for municipal fund securities 

disclose the maximum amount of the 

sales load or other nonrecurring fee.12

Such advertisement will be further 

required to disclose the total annual 

operating expense ratio, except for 

municipal fund securities held out as 

having the characteristics of a money 

market fund.13 Print advertisements will 

be required under Rule 

G–21(e)(i)(A)(4)(a)(iii) to include text 

box disclosure of this information, 

which may be combined with 

comparative performance and fee data 

and disclosures provided for under 

section (e) of the rule. New Rule 

G–21(e)(vii) will provide that any 

correspondence with the public that 

includes performance data for 

municipal fund securities must comply 

with the performance data requirements 

of Rule G–21(e) as if such 

correspondence were a product 

advertisement under that section of the 

rule.14 The proposed rule change adds 

language in Rule G–27(d)(ii), on 

supervision, with respect to supervisory 

procedures relating to the review of 

correspondence for compliance with 

this new requirement.15

Disclosures Relating to Tax-Adjusted 

Performance Data. The proposed rule 

change amends Rule G–21(e)(ii)(E) to 

delete subparagraph (2). The deleted 

provision currently requires that, in 

connection with the calculation of any 

tax-equivalent yield or after-tax return 

that appears in an advertisement for 

municipal fund securities, if the theneffective federal income tax treatment 

upon which such yield or return was 

based is subject to lapse or other adverse 

change without extension or change of 

federal law, the advertisement must 

disclose this fact and that such yield or 

return would be lower if the theneffective federal income tax treatment is 

not extended or otherwise changed. 

This deletion reflects the repeal of the 

sunset provision for many of the federal 

tax benefits enjoyed by 529 plans, as 

described below. 

General Disclosure Requirements for 

Municipal Fund Securities 

Substance of Disclosure. The 

proposed rule change makes several 

modifications to rule language in Rule 

G–21(e)(i)(A)(1) and (2) relating to 

disclosures designed to communicate 

basic information concerning 

investments in municipal fund 

securities. The modified provisions and 

the proposed interpretive notice clarify 

that these disclosures are not legends 

requiring the inclusion of specific 

language but instead require that such 

information be effectively conveyed. 

Thus, these disclosure requirements 

may be complied with if the substance 

of such information is effectively 

conveyed, regardless of the specific 

language used in the advertisement.16 In 

general, the context in which the 

information is provided is an important 

factor in determining whether the 

information is effectively conveyed. 

The MSRB understands that these 

advertising disclosures have presented 

considerable challenges in the context 

of broadcast advertisements, such as 

traditional television or radio 

commercials with 30-second run-times 

or public service announcements that 

may have considerably shorter runtimes.17 The proposed interpretive 

notice provides guidance on the use of 

abbreviated forms of the required 

disclosures in time-limited broadcast 

advertisements. 

Home State Tax Benefits. Rule 

G–21(e)(i)(A)(2)(b) requires 529 plan 

product advertisements to include 

disclosure to the effect that investors 

should consider, before investing, 

whether their home states offer state tax 

or other benefits only available for 

investments in the home state 529 plan. 

The proposed rule change permits 

dealers to omit such disclosures in 

advertisements (such as form letters, 

post cards, e-mails and other written or 

electronic mailings) concerning a state’s 

529 plan that are sent to, or are 

otherwise distributed through means 

that are reasonably likely to result in the 

advertisements being received by, only 

residents of such state. The MSRB views 

such omission as most suitable with 

respect to advertisements that are 

delivered directly to intended 

recipients, and not well suited with 

respect to broadcast advertisements 

where the dealer would bear the burden 

of establishing that such broadcast is 

reasonably likely to result in the 

message being received only by in-state 

residents. 

Communications With Existing 

Customers. The proposed rule change 

adds new Rule G–21(e)(i)(B)(3), which 

permits dealers to distribute form letters 

relating to municipal fund securities 

that omit some or all of the disclosures 

required under Rule G–21(e)(i)(A)(1) 

and (2) to existing customers who have 

previously invested in municipal fund 

securities. Form letters sent solely to 

existing customers about the same or 

related municipal fund securities that 

such customers already own may omit 

all of the standard disclosures under 

such subparagraphs (1) and (2) since 

that information will have previously 

been provided to such customers. If the 

form letters relate to municipal fund 

securities other than, or unrelated to, 

the one the customer already invests in, 

then the disclosures under 

subparagraph (2) are required. 

Furthermore, if the form letter identifies 

a source for obtaining an official 

statement and the dealer underwrites 

the municipal fund securities advertised 

in the form letter, the dealer is required 

to disclose that it is the underwriter. 

Tax-Related Disclosures for Municipal 

Fund Securities 

Rule G–21(e)(v) requires a product 

advertisement for municipal fund 

securities that discusses tax benefits to 

disclose that such benefits may be 

conditioned on meeting certain 

requirements. If the nature of specific 

benefits is described, the factors that 

may materially limit their availability 


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Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8225 

18 15 U.S.C. 78o–4(b)(2)(C). 

19See MSRB Notice 2006–26 (August 11, 2006). 

20Letters from: Jacqueline T. Williams, Chair, 

College Savings Plan Network (‘‘CSPN’’), to Ernesto 

A. Lanza, MSRB, dated September 22, 2006; 

Dorothy M. Donohue, Associate Counsel, 

Investment Company Institute (‘‘ICI’’), to Mr. Lanza, 

dated September 22, 2006; and Michael Udoff, Vice 

President, Associate General Counsel and Secretary, 

and Elizabeth Varley, Vice President and Director, 

Retirement Policy, Securities Industry Association 

(‘‘SIA’’), to Mr. Lanza, dated September 22, 2006. 

must be named. The proposed rule 

change modifies this subsection to 

clarify that generalized statements 

regarding tax benefits require only a 

generalized statement that certain 

conditions may apply and that, where 

specific benefits are described, only 

those substantive factors that may 

materially affect the ability to realize 

such benefits must be listed, rather than 

explained in full. For example, a 

statement that 529 plans are federally 

tax-advantaged, or that investors may 

qualify for federal tax benefits by 

investing in a 529 plan, without 

identifying the specific benefits, would 

be viewed as generalized statements. In 

such cases, a statement that certain 

conditions may apply, or that refers 

customers to the official statement for 

more information, would be sufficient. 

Furthermore, the inclusion of the 

required home state tax disclosure 

under Rule G–21(e)(i)(A)(2)(b) does not, 

by itself, require the disclosure of 

conditions for receiving such state tax 

benefits. 

Required Annual Reports Excluded 

From Definition of Advertisement 

The proposed interpretive notice 

provides guidance to the effect that, in 

circumstances where a dealer may be 

required by state law or rules and 

regulations to prepare or distribute an 

annual financial report or other similar 

information regarding a municipal fund 

securities program, such report or 

information will not be treated as an 

advertisement so long as the dealer 

provides such report or information 

solely in the manner required by such 

state law or rules and regulations. 

Effective Dates 

The MSRB proposes that the proposed 

rule change be made effective on 

April 1, 2007 to coincide with the 

effective date of NASD Rule 2210(d)(3). 

2. Statutory Basis 

The MSRB believes that the proposed 

rule change is consistent with Section 

15B(b)(2)(C) of the Act,18 which 

provides that the MSRB’s rules shall: 

be designed to prevent fraudulent and 

manipulative acts and practices, to promote 

just and equitable principles of trade, to 

foster cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with respect 

to, and facilitating transactions in municipal 

securities, to remove impediments to and 

perfect the mechanism of a free and open 

market in municipal securities, and, in 

general, to protect investors and the public 

interest. 

The MSRB believes that the proposed 

rule change is consistent with the Act 

because it will further investor 

protection by raising the standards for 

advertisements of municipal fund 

securities and by making information 

provided in such advertisements 

comparable for different municipal fund 

securities investments and between 

municipal fund securities and registered 

mutual funds. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The MSRB does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act since it would 

apply equally to all dealers. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

On August 11, 2006, the MSRB 

published for comment draft 

amendments to Rules G–21 and G–27 

relating to advertisements of 529 plans 

(the ‘‘Notice’’).19 The draft amendments, 

as published in the Notice, would: 

(1) Modify the definition of 

‘‘advertisement’’ to more closely align it 

with the usage of the terms 

‘‘advertisement’’ and ‘‘sales literature’’

under SEC and NASD rules; (2) adopt a 

definition of ‘‘form letter’’ consistent 

with the definition used by the SEC 

under the Investment Company Act; 

(3) establish an explicit baseline 

standard for advertisements and more 

clearly define ‘‘professional 

advertisement’’ and ‘‘product 

advertisement’’; (4) adopt provisions for 

generic advertisements of municipal 

fund securities; (5) adopt provisions 

requiring advertisements and 

correspondence containing performance 

data to also include disclosure of fees 

and expenses that are substantially the 

same as under recently approved 

amendments to NASD Rule 2210(d)(3); 

(6) clarify and simplify the general 

disclosure requirements with respect to 

certain broadcast advertisements, 

promotional materials and form letters 

relating to municipal fund securities; 

and (7) clarify and simplify the nature 

of disclosures required in 

advertisements of municipal fund 

securities in connection with tax 

matters and tax-adjusted performance 

data. 

The MSRB received comments from 

three commentators.20 After reviewing 

the comments, the MSRB has 

determined to file this proposed rule 

change. The proposed rule change is 

substantially similar to the draft 

amendments, with certain modifications 

discussed below. The principal 

comments and the MSRB’s responses 

are also discussed below. 

Additional Disclosures Relating to 

Home State Tax Benefits 

Rule G–21 currently requires 529 plan 

advertisements to state that investors 

should consider whether their home 

states offer state tax or other benefits 

only available for investments in the 

home state 529 plan. For advertisements 

(such as form letters, post cards, e-mails 

and other written or electronic mailings) 

concerning a state’s 529 plan that are 

sent solely to residents of that state, the 

draft amendment modified this 

provision to permit dealers to omit such 

disclosure since it is not relevant to 

such recipients. 

CSPN requested that language in this 

provision referencing advertisements 

published or disseminated by ‘‘the 

issuer or any of the issuer’s agents’’ be 

deleted since the MSRB has no 

authority to regulate issuers. The MSRB 

notes that this provision was not 

intended to regulate the actions of 

issuers, but rather to limit the ability of 

a dealer to use this exception if its 

advertisement is further disseminated 

by other parties, including the issuer or 

its agents. However, to avoid ambiguity, 

the MSRB has modified Rule G–

21(e)(i)(A)(2)(b) to replace this language 

with language that instead refers to 

advertisements made available by 

dealers to the issuer or any of the 

issuer’s agents with the expectation or 

understanding that such other parties 

will otherwise publish or disseminate 

such advertisements. 

Generic Advertisements 

The draft amendments included a 

generic advertising provision that would 

allow dealers to omit many required 

disclosures from advertisements that 

contain only general information about 

municipal fund securities and that do 

not name a municipal fund security or 

a specific investment option or portfolio 

of an issuer of municipal fund 

securities. CSPN, ICI and SIA requested 

that language in the draft amendments 

stating that a generic advertisement may 


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8226 Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 

21CSPN observed that this ambiguity arises from 

the fact that some no-action letters issued by SEC 

staff with respect to 529 plans refer to various 

interests relating to such 529 plans, other than the 

individual shares purchased by customers, as 

municipal securities. 

22See Rule G–17 Interpretation—Interpretive 

Notice Regarding Rule G–17, on Disclosure of 

Material Facts, March 20, 2002, reprinted in MSRB 

Rule Book. 

23See letter dated November 29, 2004, to Therese 

Squillacote, Chief Compliance Officer, ING 

Financial Advisers, LLC, from Philip A. Shaikun, 

Assistant General Counsel, NASD; letter dated 

September 30, 2002, to Sally Krawczyk, Esq., 

Sutherland, Asbill & Brennan, LLP, from Mr. 

Shaikun; and letter dated February 5, 1999, to W. 

Thomas Conner, Vice President, Regulatory Affairs, 

National Association of Variable Annuities, from 

Robert J. Smith, Office of General Counsel, NASD 

Regulation, Inc. 

not refer by name ‘‘to any specific 

municipal fund security’’ be deleted, 

arguing that it creates ambiguities as to 

whether a reference in an advertisement 

to a 529 plan’s general program name 

would disqualify such advertisement 

from being considered a generic 

advertisement.21

The MSRB believes that the deletion 

requested by the commentators would 

be appropriate and consistent with the 

intended operation of this provision. 

Thus, as this provision has been 

modified in the proposed rule change, 

an advertisement that mentions the 529 

plan’s general program name could be 

considered a generic advertisement if all 

other relevant conditions have been 

met. However, mention of specific 

investment options or portfolios would 

disqualify the advertisement from being 

treated as a generic advertisement. 

Blind Advertisements 

The draft amendments provided that 

a blind advertisement that promotes an 

issuer and its public purpose without 

promoting specific municipal fund 

securities or identifying a dealer or its 

affiliates also would qualify as a generic 

advertisement. Among other things, a 

blind advertisement may include 

contact information for the issuer or an 

agent of the issuer to obtain an official 

statement or other information, 

provided that if such issuer’s agent is a 

dealer or dealer affiliate, no orders for 

529 plans may be accepted through such 

source. The provision for blind 

advertisements was designed to address 

the unique characteristics of the 529 

plan market, where regulated dealers 

and issuers not subject to MSRB 

regulation often undertake publicprivate partnerships in marketing 529 

plans, raising issues that do not arise in 

the registered investment company 

market. 

CSPN and ICI requested clarification 

that the use in an advertisement of a 

phone number or Web site that includes 

the name of a dealer acting as the 

issuer’s agent would not preclude such 

advertisement from being treated as a 

blind advertisement. The intent of this 

provision is that a blind advertisement 

cannot, on its face, identify a dealer or 

its affiliates. Therefore, although contact 

information may be included in the 

advertisement that directs a potential 

customer to a dealer or its affiliate 

acting as agent of the issuer, the face of 

the advertisement may not identify such 

dealer or affiliate. The proposed 

interpretive notice provides guidance on 

information that may be included in a 

blind advertisement. 

CSPN and ICI also requested 

modifications to the language providing 

that, if the source for more information 

identified in the advertisement is the 

dealer or a dealer affiliate, no orders 

may be accepted through that source. 

The commentators were concerned that 

a reference to a Web site for more 

information would preclude such Web 

site from allowing investments in the 

529 plan. CSPN stated that ‘‘[e]very web 

site on which an individual can 

purchase interests in a Section 529 Plan 

requires the investor to acknowledge 

reading or receiving the Official 

Statement before investing. It is not 

clear what would be gained by requiring 

the potential investor to get information 

from one web site and then make the 

purchase on another web site.’’ ICI 

suggested alternative language to the 

effect that ‘‘no initial orders for 

municipal fund securities shall be 

accepted through such source, unless 

before placing such an order an investor 

is required to acknowledge that he or 

she received the official statement for 

such securities.’’

The MSRB understands the concern 

expressed in connection with Webbased sources but believe that ICI’s 

suggested language is not the 

appropriate approach to addressing this 

issue, particularly since Rule G–17, on 

fair practice, already requires dealers to 

provide all material facts about the 

transaction known by the dealer, as well 

as material facts about the security that 

are reasonably accessible to the market, 

to the customer on or prior to the time 

of trade.22 Given that the provision for 

blind advertisements seeks to ensure 

that such advertisements are 

informational in nature and not 

primarily designed to promote sales by 

the dealer, the MSRB believes that a 

distinct barrier between providing 

information and seeking orders should 

be maintained. However, the MSRB 

does not believe that such barrier 

should create an arbitrary disincentive 

for those potential customers who 

themselves seek to initiate an order. 

Thus, the proposed rule change 

modifies the language of Rule G–

21(e)(i)(B)(2)(b) to allow the acceptance 

of orders if initiated by the customer. 

The proposed interpretive notice 

provides guidance on ensuring that only 

customer-initiated orders are accepted 

through a source identified in a blind 

advertisement. 

Tax-Adjusted Performance Data 

Rule G–21 currently provides that, in 

calculating tax-equivalent yield or aftertax return for a 529 plan advertisement, 

the advertisement must effectively 

disclose that such yield or return would 

be lower if the sunset provision for 

many of the federal tax benefits enjoyed 

by 529 plans, previously scheduled to 

occur on January 1, 2011, were not 

repealed. In view of the recent 

enactment of the Pension Protection Act 

of 2006 (Pub. L. 109–280), which 

repealed this sunset provision, the 

Notice sought comment on whether this 

provision should be deleted. CSPN, ICI 

and SIA agreed that this provision 

should be deleted. Thus, the proposed 

rule change deletes this provision in 

Rule G–21(e)(ii)(E). 

Required Annual Reports Excluded 

From Definition of Advertisement 

CSPN stated that the broad definition 

of advertisement in Rule G–21 could be 

construed to include annual financial 

reports undertaken by many dealers 

acting as 529 plan program managers. 

CSPN stated that such annual reports 

are not solicitations of new business and 

suggested that audited annual reports 

produced for or in conjunction with 

issuers be explicitly exempted from 

treatment as an advertisement. 

The MSRB notes that NASD has 

issued several interpretive letters in 

which NASD addresses the applicability 

of its advertising rule, Rule 2210, to 

certain performance information and 

hypothetical illustrations required by 

state laws to be provided by dealers in 

connection with retirement investments 

and variable annuity contracts.23 In each 

case, NASD concluded that the 

provision by dealers of the information 

required by state law would not be 

treated as an advertisement or sales 

literature for purposes of Rule 2210 so 

long as the information was provided 

solely in the manner required by law. 

NASD further stated that any additional 

use of such information beyond what is 

required by law would be subject to the 

NASD advertising rule. In addition, 

NASD stated in one of the interpretive 

letters that the use of such information 


cprice-sewell on PROD1PC61 with NOTICES
Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8227 

24 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

by the dealer remained subject to all 

other NASD rules and the federal 

securities laws, including the anti-fraud 

provisions. 

The MSRB believes that the approach 

NASD has taken with respect to 

investment companies is appropriate as 

well with respect to 529 plans and other 

municipal fund securities programs and 

has provided guidance to this effect in 

the proposed interpretive notice. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

As the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

A. By order approve such proposed 

rule change, or 

B. institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–MSRB–2006–09 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–MSRB–2006–09. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing also will be 

available for inspection and copying at 

the MSRB’s offices. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–MSRB–

2006–09 and should be submitted on or 

before March 16, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.24

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3091 Filed 2–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55300; File No. SR–

NASDAQ–2007–002] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Order Granting Accelerated 

Approval of Proposed Rule Change, as 

Modified by Amendment No. 1 Thereto, 

To Trade the Shares of Certain 

Exchange-Traded Funds Based on 

Fixed Income Portfolios Pursuant to 

Unlisted Trading Privileges 

February 15, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

29, 2007, The NASDAQ Stock Market 

LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been substantially prepared by the 

Exchange. On February 13, 2007, 

Nasdaq filed Amendment No. 1 to the 

proposed rule change. This Order 

provides notice of the proposed rule 

change, as modified by Amendment No. 

1, and approves the proposed rule 

change, as amended, on an accelerated 

basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Nasdaq is proposing to trade shares 

(the ‘‘Shares’’) of: (1) The iShares 

Lehman TIPS Bond Fund; (2) the 

iShares Lehman Aggregate Bond Fund; 

(3) the iShares iBoxx $ Investment 

Grade Corporate Bond Fund; (4) the 

iShares Lehman 20+ Year Treasury 

Bond Fund; (5) the iShares 7–10 Year 

Treasury Bond Fund; (6) the iShares 

Lehman 1–3 Year Treasury Bond Fund; 

(7) the iShares Lehman Short Treasury 

Bond Fund; (8) the iShares Lehman 3–

7 Year Treasury Bond Fund; (9) the 

iShares Lehman 10–20 Year Treasury 

Bond Fund; (10) the iShares Lehman 1–

3 Year Credit Bond Fund; (11) the 

iShares Lehman Intermediate Credit 

Bond Fund; (12) the iShares Lehman 

Credit Bond Fund; (13) the iShares 

Lehman Intermediate Government/ 

Credit Bond Fund; and (14) the iShares 

Lehman Government/Credit Bond Fund 

(collectively, the ‘‘Funds’’) pursuant to 

unlisted trading privileges (‘‘UTP’’). The 

text of the proposed rule change is 

available at Nasdaq, the Commission’s 

Public Reference Room, and 

nasdaq.complinet.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item III below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Nasdaq is proposing to trade pursuant 

to UTP the Shares of the Funds, which 

are exchange-traded funds (‘‘ETFs’’) that 

invest in fixed income securities. 

Nasdaq represents that its current 

generic listing standards for ETFs do not 

extend to ETFs that invest in fixed 

income securities. The systems operated 

by Nasdaq and its affiliates currently 

trade Shares of the Funds on an overthe-counter basis as facilities of NASD. 


cprice-sewell on PROD1PC61 with NOTICES